The Velera Payments Index: September 2024
Today, Velera published the September edition of the Velera Payments Index, the goal of which is to provide information and insights to help financial institutions navigate the evolving financial landscape to make informed, strategic decisions for their organizations and members.
In August, growth in consumer spending increased on debit but softened on credit, mainly due to lower gasoline prices. At the same time, consumers wait with great anticipation of the expected interest rate cuts by the Federal Reserve on Sept. 18. In our September 2024 edition of the Velera Payments Index, we present a Deep Dive on Back-to-School spending activity. A National Retail Federation (NRF) survey finds that more than half (55%) of shoppers started back-to-school purchases in July.
While the Consumer Confidence Index ticked up in August to 103.3 (from an upwardly revised 101.9 in July), survey results reveal confidence has remained within a narrow range for the past two years. While still positive, participants express continued concerns on the labor market. Confidence increased for consumers 35 and older, while dropping for those under 35. The University of Michigan Index of Consumer Sentiment increased slightly in August from July, up 1.5 points at 67.9. This survey reported a particularly sizable 10% improvement for long-run expectations that was seen across age and income groups.
In August, jobs increased by 142,000, with gains occurring in construction and healthcare. The U.S. Bureau of Labor Statistics (BLS) reported the overall unemployment rate for August was slightly lower by 0.1 percentage point to 4.2%, or 7.1 million people. The labor force participation rate, which has seen little change over the past year, remained at 62.7% in August. In an update on Aug. 21, the total number of new jobs for the 12-month period of April 2023 to March 2024 was revised downward by 818,000 jobs, with the largest portion of the reduction coming in professional and business services jobs (358,000 fewer). This revision illustrates a more accurate and slower pace of job growth, with the average monthly job growth revised to 173,500 compared to the previously stated 242,000.
In the Labor Department’s Sept. 11 update, the Consumer Price Index (CPI) increased 0.2% in August, bringing the cumulative 12-month rate of inflation down to 2.5%. Shelter, up 0.5% for August, again accounted for the majority of the monthly increase. The food index increased by 0.1% while the energy index, which includes gasoline, declined 0.8%. Core CPI, which excludes the Food and Energy sectors, decreased to 3.2% for the 12-month Core CPI rate through August. While inflation continues to decline, so does the Personal Savings Rate, the percentage of income left after consumers spend money and pay taxes. For July 2024, it was 2.9% – the lowest point in the past two years.
With three remaining Federal Open Market Committee (FOMC) meetings in 2024, there is much anticipation for an interest rate reduction at the meeting concluding Sept. 18. These expectations come from both a number of economic indicators, including inflation, which is now 2.5% through August, and Fed Chair Jerome Powell hinting at rate reductions at the Jackson Hole meeting on Aug. 23. While there is some anticipation of a rate cut greater than a quarter-point, economists warn that could be “very dangerous” in playing into fears about a possible recession.
“In this month’s Deep Dive, back-to-school spending revealed growth in discount and department stores, digital merchants and wholesale clubs, as consumers look to continue stretching their dollars as they battle inflation. While consumer spending on credit softened in August, credit card balances continue to rise,” said Tom Bennett, principal, Consulting at Velera. “As the holiday shopping season approaches, now is the time for credit unions to prepare for supporting increased member credit usage. Developing campaigns to launch in the new year and planning ahead for managing the seasonal rise in delinquencies are timely strategies to consider."
Key takeaways for August include:
For August, year-over-year growth rates accelerated for debit but remained somewhat flat for credit. Debit purchases were up 6.2%, with almost one third of the growth coming from Money Services (CashApp, Venmo, Zelle, etc.). Credit purchases were down 0.8%, with most of the reduction coming from the Gasoline sector (-0.6%). Debit transactions were up 4.2% and credit transactions were up 1.3% year over year.
The Consumer Price Index (CPI-U) declined in August, bringing the 12-month rate of inflation to 2.5% – the lowest point in the past three years. Shelter, which rose 0.5 percent in August, accounted for the majority of the monthly increase, while energy contributed to the largest decrease, down 0.8.
Purchase growth for our “expanded” group of back-to-school merchant categories generally aligned with the growth in overall credit and debit card results. Year-over-year growth in debit purchases was up 7.5% and growth in back-to-school credit purchases was up 1.7%, fueled by growth with digital merchants, discount and department stores, and wholesale clubs. Purchase growth in more specialized merchant categories, like sports apparel, electronics and office supplies, was much lower year over year.
The August delinquency rate was down 6 basis points compared to July 2024, but up 36 basis points compared to August 2023. Despite the monthly improvement, the credit card delinquency rate in 2024 remains elevated compared to the past few years, as well as when compared to the pre-pandemic patterns of 2019.
Growth in year-over-year total credit card balances was up 4.2% for August. While total balances continue to increase, the rate of growth is slowing with August marking the low point for 2024 thus far.
The full report is available for download here or can be shared as a PDF upon request. Please let us know of any questions or additional needs, or if you’d like to coordinate an interview.
